Rabie the global debt crisis and its socioeconomic implications; creating conditions for a sustainable, peaceful, and just world (2018)

This means that solving the debt crisis requires action that includesgrowing the economies of indebted nations; putting an end to political andeconomic corruption; and transforming the p

THE GLOBAL DEBT CRISIS

AND ITS SOCIOECONOMIC IMPLICATIONS

Creating Conditions for a Sustainable, Peaceful, and Just World

The Global Debt Crisis and Its Socioeconomic

Implications

The Global Debt Crisis and Its Socioeconomic

Implications Creating Conditions for a Sustainable, Peaceful,

and Just World

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© The Editor(s) (if applicable) and The Author(s) 2018

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and made me proud of their life accomplishments

P REFACE

The near collapse of the international banking system in September 2008,and the Great Recession that followed, have exposed the seriousness of thefinancial and economic problems facing Europe, the United States andmany other countries They also revealed that these problems are due not

to economic and political mismanagement only, but also to European andAmerican loss of economic competitiveness and lack of business ethics bymanyfinancial institutions and insurance and mortgage companies Sincethe roots of these problems are deep, addressing them requires thoughtfulthinking, sound economic andfinancial reforms, political changes in policyand structure, and, above all, sociocultural transformation

Owing to thefinancial crisis, many states in the world were forced to bailout troubled banks and failing corporations, thus adopting expansionistpolicies to stimulate contracting economies Consequently, state borrowingincreased substantially and caused the public debt and budget deficits ofmost nations to rise rapidly and reach, in many cases, unsustainable levels.Some troubled states, however, moved to cut spending in order to containbudget deficits and reduce borrowing as they tried to restructure theireconomies in the hope of regaining competitiveness and reviving theirstruggling economies But neither approach has succeeded in correctingthe structural deficiencies and achieving the desired goals

Today, many states in the West and East, North and South are facing adilemma: how to reduce budget deficits to contain the ever-increasing debtand, at the same time, stimulate stagnating or hardly growing economies tocreate jobs for the unemployed All indebted nations subscribing to the free

vii

market system are in a bind; the goals they seek to accomplish are dictory; and the actions they must take are incompatible While reducingbudget deficits to contain the public debt requires reducing governmentspending and raising taxes, stimulating economies to create new jobsrequires increased government spending and tax reductions Since there is

contra-no formula in our classical ecocontra-nomic books to achieve these contradictoryobjectives, something new has to be envisioned The formula this book tries

to invent is called the“Ramo Plan.” Its role is to enable nations to resumehealthy economic growth and create jobs for the unemployed, withoutwidening budget deficits or increasing the debt burden

While current economic thinking is no longer able to help, thefinancialpolicies implemented since 2008 have proven to be largely counterproduc-tive: they have increased poverty, widened the income and wealth gaps inevery society, and failed to stop debt from growing In fact, without theschemes invented by the American and European central banks to reduceinterest rates to near zero, the global debt would by now have reached atleast 150% its current size In order to justify the proposed Ramo Plan andexplain the need for it, I shall place it in its proper societal and historicalperspectives, a task that includes reviewing the state of the American econ-omy in view of its stimulus plan, as well as the Spanish and Greek economies

in view of their austerity plans

To deal with the public debt crisis, we need to understand that debt is aconsequence of budget deficits, which are a consequence of fiscal policiesthat fail to raise enough revenues to meet a state’s spending targets; andfailure to raise enough revenues tofinance state spending is a consequence

of economic policies that fail to grow national economies In rich countries,such as the United States and Britain, the failure to raise enough revenues isprimarily due to unfair social policies that favor the rich at the expense of thepoor This means that solving the debt crisis requires action that includesgrowing the economies of indebted nations; putting an end to political andeconomic corruption; and transforming the political and economic systemsand cultures of nations On the other hand, growing the national economies

of nations has become a function of the dynamics of the global economyand how it is managed

This book intends to articulate a plan to liberate all rich and poor nationsfrom the debt burden, restructure the international monetary system andcreate the necessary conditions for sustainable global sociocultural andeconomic development, while helping the world’s poor and protectingthe environment The plan has come as a result of deep thinking about

the woes of our times; the duty to help poor people and desperate childrenclimb out of poverty; the need to save college students from debt andinadequate education; and a moral responsibility to liberate oppressed andundereducated young women and men from economic and social enslave-ment and radicalization The plan also aims to save future generations fromhaving to pay a debt incurred by current and previous political leaders.Since the intention of the Ramo Plan is to help everyone, it does not askbanks, investors or bond holders to sacrifice anything; and it does not callfor the redistribution of income or wealth or seek to raise taxes The plan is aprogram to free the poor from need and create new investment opportuni-ties for the rich to exploit As a consequence, it lends a helping hand toeveryone and penalizes no one.

But before outlining this plan, I shall explain in the next few pages where

I come from; how I view the world and our place as human beings in it; andwhat kind of lessons we are able to learn from history This will help toexplain why I thought of this plan, and how I am able to reach theconclusions outlined hereunder Meanwhile, placing the major economic,financial and sociocultural challenges facing all nations in their properhistorical context, which will be done in thefirst chapter, will help us toview the challenges of our times with clarity, and approach them with fair-mindedness and confidence

People, who believe in God as being the creator of all things, also believethat all humans are the descendents of one man (Adam) and one woman(Eve) Since we have the same mother and the same father, we must be onepeople belonging to the same and only race; people who believe in evolu-tion also believe that we all came from animals that look like apes thatappeared in Africa many thousands of years ago As a consequence, eachtheory says that all of us came from one source In fact, whenever we defineourselves, we unconsciously say the human race, not the human races.But on our way to populate earth, we were exposed to three powerfulforces that shaped our life experiences and greatly influenced the ways welook, think and behave, causing us to develop different traditions, languagesand religions These forces are: natural selection or the law of the survival ofthefittest; random mutation that gave us the diversified colors and features

we have today; and an unpredictable environment that forced man andanimal to continue moving and discovering new places, adapting to nature’sdictates and developing different habits and traditions Some humans andanimals were able to survive andflourish, but many vanished because theyfailed to adapt to harsh environments Although our life experience moving

PREFACE ix

from one place to another throughout history has enabled us to gaincultural and religious diversity, we have encountered no other race toacquire racial diversity Embracing cultural diversity strengthens our unityand enriches our lives; embracing racial diversity divides us into savage tribesand destroys the essence of our lives.

On the other hand, religion is an accident of birth: everyone knows that

no man or woman was able to choose his or her religion at birth, parents orplace or time of birth, name or color or social class at birth Therefore, noone should be punished or rewarded because of things that were inherited atbirth And since religion is an accident of birth, everyone must have theright to stay in his inherited religion or change it It is the duty of society torespect everyone’s religious choice, and the state’s responsibility to protecteveryone’s religious and nonreligious rights

People who believe in God also often believe that whatever they inherit

at birth reflects God’s will God chooses for each of us our parents andreligion, the time, place and life conditions at birth This means that everyreligion is legitimate because it was inspired by God; therefore, everyreligion must be respected by all believers and states Anyone who refuses

to accept the religious beliefs of other people as legitimate and equal to hisown religion is in fact rejecting the will of the God he claims to believe

in You cannot accept what God chooses for you and, at the same time,reject what God chooses for your fellow human beings

As for my life experience, I am fortunate to have experienced the opment of human societies over time, and witnessfirsthand the evolution ofcivilizations And because civilizations go through transitional periodsbefore transformations are completed, living the life I have lived has given

devel-me a unique, probably unprecedented, opportunity to witness transitionalperiods in history and feel the agonies and hopes of people living throughthem My writings are thus based on real life, and are not a matter ofimagination or intellectual curiosity

I was born into an agricultural community where neither electricity norrunning water nor modern sanitation systems were available Every family inour town owned a house and a piece of land to farm; there were no poorfamilies or landlords practicing feudalism But as I was growing up andbecoming aware of my social and economic environment, war eruptedsuddenly in my country, causing my family and generation to becomerefugees The refugee camp in which I spent aboutfive years of my youthwas outside an agricultural town at the edge of a desolate, hot and dry

desert Thefirst two years were lived in shacks rather than in tents because

no international organization paid attention to our plight During this time,

my older sister and I were assigned the task of roaming the neighboringdesert and mountains to collect vegetables and dry and dying bushes tomakefires for cooking; it was a boyhood living the life of a hunter-gathererwho hunted no animals but gathered a lot of vegetables and wood.Other circumstances led me to share food with nomads, listening to theirsongs and stories, spending time in their tents, observing their daily life andbeing with shepherds as they went about their daily tasks in the desert.Walking and talking with sheep herders, and listening to the music ofprimitive lutes in the company of herds of sheep and well-trained dogshelped me gain a deep understanding of tribal man’s culture and purpose

in life By the time I entered high school, my family had moved to Jericho,which is believed to be the world’s oldest city All nine of us lived in aone-bedroom apartment that had none of the basic amenities We rentedand cultivated a small piece of land on which we lived and whose produceprovided most of the food we needed to support a subsistence living Allchildren who were able to help cultivate the produce were required to do

so Domesticated turkeys, chickens, pigeons and rabbits provided meat tosupplement our diet

Upon graduation from high school, I received a grant from the UnitedNations to study in Cairo, one of the largest and most vibrant cities of theThird World at the time The trip to Egypt gave me myfirst opportunity to

fly in a plane and spend a night in a hotel, in Beirut, Lebanon Living inCairo gave me a chance to observe affluence and abject poverty coexistingpeacefully, and to watch modern and primitive cultures living their separate,estranged lives in one place In the meantime, Third World nationalism andsocialism were thriving in Cairo along with anti-imperialism, in an atmo-sphere that inspired young people and gave hope to the deprived It wasonly there that I was able to live in a house with electricity, running cold andhot water, and even a phone that worked Life in Cairo at this timerepresented what I call the transitional period separating two civilizations,the agricultural and industrial ones

Five years later, I received a grant from Germany, where I witnessed theso-called German Economic Miracle, which pulled Germany from thedevastation of World War Two to become one of the leading economicpowers of the world I was able to study closely the development of thecountry’s economy and observe the work ethic of the German people, andfor almost two years I lived in a mature industrial society While I was in

PREFACE xi

Germany, I pursued a graduate degree and worked for a few months in apublishing house Most of my free time was spent visiting as many cities,villages and historical sites as possible and immersing myself in the culture ofthe land Life in Germany gave me a priceless opportunity to move in mythoughts, life conditions and awareness from those of a traditional tribal andagricultural society to those of an industrial, highly organized society In

1965, I moved to the United States where I completed my higher tion, received a Ph.D degree in economics and taught at two Americanuniversities While living in the United States, I witnessed two of the mostimportant social and political movements in US history: the civil rightsmovement and the anti-war movement that opposed US actions inVietnam

educa-In 1970, I left the United States to teach at Kuwait University; and while

I was there I managed to change the educational system and the curriculum,introducing coeducation for thefirst time in the history of the Arab Gulfstates And through my participation in the cultural life of this society, Ilearned how immigrant workers lived and how they viewed life conditions inthat part of the world For six consecutive years, I witnessed a semi-tribalsociety lose the major characteristics of its way of life as oil wealthtransformed it into what I call a “petroleum society.” It was a societywhose roots were anchored in the fifteenth century, while its aspirationswere reaching the twenty-first century Most Kuwaiti people thought andbehaved at the time as if they could buy anything with money, and as if theycould employ anyone they pleased, offering no rights except the right to getpaid Since those societies had not experienced the agricultural age, theavailability of money caused the culture of production to be separated fromthe culture of consumption

In 1976, I returned to the United States, where I taughtfirst at town University in Washington DC and then at three other universities Inaddition to teaching, I was involved in business and research, and wrote andpublished books covering several topics While living in Washington, Iwitnessed the transformational impact of the Reagan and Clinton years onAmerican society, culture and politics; it was an opportunity to witnesscivilizational changes for the third time, and live through the transitionalperiod that led a mature industrial society to enter a new age, whose coresystems are based on knowledge This new age was caused by a knowledgerevolution that began in the mid-1990s and is still unfolding

George-Between 1998 and 2000, I spent my time shuttling between Washingtonand Germany, giving lectures at German universities and research institutes,

and advising Erfurt University which reopened after more than two ries, having been closed because of the religious wars of the seventeenthcentury In 2002, I went to Morocco where I spent more than two yearsteaching at Al Akhawayn University and two more years living in Jordan Sofor the second time in forty years, I had the opportunity to observe how lifeconditions and cultures change during a transitional period that separatesthe agricultural from the industrial age, where globalization has causedtraditional cultures to lose many old-age traits and characteristics and tobecome deformed beyond recognition.

centu-Since boyhood, my life has been an ever-evolving and fascinating story Ithas taken me to numerous places in Asia, Europe, the Middle East, NorthAfrica, and North and South America, which has enabled me to look back at

my primitive roots and to explore the unknown future in my thoughts andways of living Ever since I graduated from college, I have continued totravel, give lectures, write articles for newspapers and publish books Thus

my perspective goes beyond the ups and downs of ordinary life in onesociety or one civilization, and my connections to places, civilizations andhistorical phases I have experienced have continued to fascinate me and tochallenge my intellectual capacities

Therefore, I can say with confidence that I have experienced, within mylifetime, starting with the pre-tribal age, the life experience of more than

600 generations I believe that no other person has lived my life; and no onewill ever live such a life because some of the times I have lived have comeand gone and will never return Going through this rough but fascinatingexperience, I have been able to learn something new from each generationand to gain valuable wisdom from each civilization, causing my perspective

on life, culture and history to be unique And because of the loss of mychildhood, home and livelihood, my intellectual curiosity, awareness andlove for knowledge were awakened at a very early age, helping me tobecome what I am today

September, 2017

PREFACE xiii

1 Evolution of Civilizations 1

2 Global Change 15

3 The Global Debt Crisis 23

4 A View of the Global Scene 43

5 The US Political and Economic Scene 61

6 Capitalism and Democracy 91

7 Market Capitalism and Materialism 111

8 Debt, Inequality and Economic Growth 125

9 Globalization and the Debt Crisis 139

10 The Debt Crisis and the US Economy 149

xv

11 The Spanish Austerity 167

12 The Greek Debt Saga 183

13 The Nature of the Transition 191

14 A Peek at the Future 201

15 Concluding Remarks 215Selected References 221

xvi CONTENTS

Table 5.1 Foreign trade—U.S trade with China—census 70Table 5.2 Bureau of Labor Statistics data 71

xvii

CHAPTER 1

Evolution of Civilizations

The purpose of this chapter is to explain how human societies have oped over time; and how the movement from one civilization to another hascaused each society to go through a transitional period During thesetransitional periods, older civilizations lose the major characteristics oftheir cultures, economies and societies, causing the new civilization to befundamentally different from the older one; the transition also causes theolder civilization and its people to become dependent on the new one andits people

devel-Social scientists seem to agree that the greatest revolutions in humanhistory were the Agricultural and Industrial revolutions, which gave birth tothe agricultural and industrial civilizations There is also an agreement onthree major civilizations: tribal, agricultural and industrial Nevertheless, agrowing number of scholars believe that the twin revolutions of informationand communications represent another historical revolution that is destined

to transform the totality of life conditions everywhere This new stage isoften referred to as the information age or the globalization age; I call it theknowledge age, because it is knowledge that includes the twin revolutionsand recent innovations and scientific discoveries that launched the Knowl-edge Revolution in the mid-1990s, causing all aspects of life to go throughfundamental transformation Analyzing how these stages developed andhow they relate to each other should enable us to place all changes intheir proper historical contexts and track the course of transformationover time It should also enable us to depict the major trends of changeand to put us in a good position to make sound predictions

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© The Author(s) 2018

M Rabie,The Global Debt Crisis and Its Socioeconomic Implications,

https://doi.org/10.1007/978-3-319-66215-2_1

Historical records suggest that long before the development of ture human beings were able to get enough food and attain sufficientsecurity to survive and grow Familial ties, customs and traditions served

agricul-as the social glue that held early societies together and gave meaning topeople’s lives This means that the roots of civilization came into existenceprobably 30,000 years ago However, this was a primitive civilization, inwhich society depended primarily on the hunting of animals andfish and thecollecting of wild fruits and vegetables However, at the end of this stage,man was able to domesticate many animals, and that enabled the tribalsociety to fully develop and become sustainable; and in some instances semi-settled tribal societies appeared, paving the way for the development ofagriculture

With the development of agriculture some 10,000 years ago, the nomic base began to change, causing culture and social and economicstructures of society to change fundamentally.“Plant and animal domesti-cation meant much more food and hence much denser human populations.The resulting food surpluses and the animal-based means of transportingthose surpluses, were a prerequisite for the development of settled, politi-cally centralized, socially stratified, economically complex, technologicallyinnovative societies.”1But after agriculture was established and its culturefully developed, the pace of change slowed, causing socioeconomic andsociocultural conditions to stabilize Nevertheless, the later centuries of theagricultural era witnessed the birth of organized religion, the development

eco-of writing, the formation eco-of states and empires, expansion eco-of trade and theincorporation of merchant life into the life of society

In the second half of the eighteenth century, the production ofmanufactured goods emerged in England as the most important economicactivity This development heralded the coming of a new era, the industrialage, and the dawn of rapid change in all aspects of life The coming together

of major social, cultural, scientific, and particularly economic and logical developments is what we call the Industrial Revolution It was arevolution that changed the mode of production and production relations,forcing all aspects of life to change drastically “Our fathers started therevolution and we are still living it We could not stop it even if we wantedto.”2In the early 1990s, industrial society in general began to experience anew wave of drastic change driven by knowledge, the information andcommunications revolutions and globalization In the mid-1990s, theknowledge age began to impose its logic on the prevailing ways and states

techno-of living, causing all aspects techno-of life to undergo fundamental change

THETRIBAL AGEThis age lasted longer, but experienced less change than any other age Itsroots go back to the hunter-gatherer era, probably 100,000 years ago, andcontinued until the development of agriculture 10,000 years ago Peopleduring this age lived in small families that survived through the hunting ofanimals and the gathering of fruits and vegetables About 30,000 years ago,tribal society emerged, causing small families to become part of a largerfamily, while enabling the new society to organize life in ways that made itmore secure and dynamic The domestication of animals some 11,000 yearsago enabled nomads to strengthen their economic base and to furtherdevelop their way of life Domesticated animals made tribal life easier andsustainable; the meat of some animals was used for food, while the skin andfur of others was used for clothing and the bones of some served as tools,weapons, musical instruments and ornaments In addition, peopleemployed some animals, such as the camel, horse and elephant, as means

of transportation, which enabled them to move across difficult terrains andinteract peacefully and otherwise with other tribes The intellectual horizon

of tribal people, however, remained“limited to their allegiance to the tribeand its traditions and legacy.”3Culture in this age was in essence a way oflife based on inherited norms and a history of feuding with other tribes Thesocial and cultural aspects of life, or what I call the sociocultural process,governed the pace of change and influenced its nature for many generationsthereafter

Since economic conditions were basically the same everywhere, theenvironment became the primary force influencing the course of change.And because environmental conditions were similar in most inhabitedplaces, they produced similar patterns of living Consequently, tribal cul-tures displayed almost identical characteristics in content, attitude, characterand outlook; all had the same internal and external dynamics.“Many events

in human history seem to correlate very remarkably with environmentalcontrols The historical theory that ascribes many events in the humanrecord to environmental causes thus receives powerful support fromgeology.”4

But since the places where tribes lived were different in geography andtopography and the distribution of plants and animals, different tribesdomesticated different animals and developed slightly different cultures.Because of this diversity, argues Jared Diamond, some regions were able

to develop faster and make more progress than others “Hence the

THE TRIBAL AGE 3

availability of domestic plants and animals ultimately explains why empires,literacy, and steel weapons developed earlier in Eurasia and later, or not atall, on other continents.”5In addition, nature and the dictates of a nomadiclife denied people the opportunity to establish roots in one place, leadingthem to have no attachment to a country or nation The family house wasthe place to which tribal people exhibited most attachment, and the tribewas the nation to which they belonged.

THE AGRICULTURALAGEAbout 10,000 years ago, man began to domesticate plants and developagriculture Although no one knows how this discovery came about, his-torical records strongly suggest that agriculture was first practiced inpresent-day Palestine, Syria, Lebanon and Egypt From there, it traveled

to other Asian, African and European countries It is also believed thatagriculture may have developed independently in other regions, particularly

in China and New Guinea It is significant that “the long transition fromforaging to agricultural life happened in several places seemingly inde-pendently, yet within a few thousand years of one another.”6Year-roundwarm weather and the abundance of water and fertile land made a semi-nomadic life possible And this enabled man to observe nature closely andfollow its course, and ultimately to discover the lifecycle of plants anddevelop agriculture

Since tribal men were forced by nature and culture to spend most of theirtime foraging, I believe that women were responsible for the discovery ofthe lifecycle of plants and thus the development of agriculture In fact,women in many agricultural societies have continued to spend most oftheir time cultivating the land, tending plants, preparing produce for food,and preserving vegetables and fruits for cold seasons and hard times There-fore, women should be given credit for causing the most important revolu-tion in human history

The development of agriculture changed the way in which societies andeconomies were organized and transformed cultures and people’s relation-ships to each other and to their environment Agriculture brought about anew civilization, with its own society, economy, culture, social and eco-nomic structures, and political organization.“The change from hunting andgathering to agriculture involved more than a mere change in subsistencepattern; it represented a complete change in the social and cultural fabric oflife.”7As a consequence, the old way of life had to recede and the building

of a different way of life had to begin And as agriculture became anestablished way of life, permanent settlements began to appear and grow

in size, leading people to build houses and communities, and to make roots

in scattered hamlets and villages As a result, land acquired a new meaningthat forced societies to reorganize their social and economic life around

it “Compared with the thousands of years humans spent foraging, theconstruction of villages represented another revolutionary change in cul-ture, subsistence, technology, social organization and history In manyrespects, humans still have not successfully completed this major transi-tion.”8The importance of land to people led eventually to private owner-ship of land, causing society to be divided into two social classes separatedmainly by land ownership

The farming of the land from permanent bases caused people to develop

a strong attachment to their environment, which led individuals and families

to acquire a sense of belonging to a place and community, and later to asociety and state As a result, people were forced to develop new traditions,initiate new internal and external relationships, and compete to improve thequality of their lives And as communities grew in size and number, tradeappeared and began to play an increasing role in societal life, leadingeconomies to grow and diversity And with the expansion of trade, a needfor a superstructure or state was created to regulate access to water and landresources, and to protect agricultural communities and traders fromroaming tribesmen Subsequently, politics and political institutions, orwhat I call the political process, emerged to play an important role insocietal life

Learning from their experience and environment, people began todevelop knowledge and make tools, causing land and labor productivity

to rise and needs and desires to grow in ways that affected people’s ways ofliving and social relations In the meantime, the accumulation of knowl-edge, the institutionalization of private property and the ability to produce afood surplus worked together to introduce the idea of progress to humanlife One of the new forces that played a pivotal role in the development ofboth state and culture was organized religion This emerged in response tocertain human needs, particularly man’s inability to explain nature, itsworkings and many of its manifestations Religion was also needed toprovide ethical and moral codes of conduct and regulate social relations,especially during the formative stages of agricultural communities Sincesome of the questions raised by man thousands of years ago continue toelude science even today, religions have continued to play a major role in

THE AGRICULTURAL AGE 5

individual and group lives, influencing social relationships and people’sworldviews.

Since the means of survival during the agricultural age were almost thesame everywhere, cultures were similar in content and character The littlechange that cultures exhibited during these times came largely as a result ofexternal rather than internal forces, which compelled some groups to inter-act with each other through travel, trade, migration, war and conquest

“The ways in which different societies responded to challenges guished Chinese civilization from that of the Aztecs, or Egyptian civilizationfrom that of India Problems produced unique responses and further dif-ferentiated one culture from another.”9Nevertheless, the production andconsumption of food continued to be the focal point of the life of agricul-tural society As a result, agricultural man ate to live and lived to eat,making food production and consumption the essence of the culture ofthe agricultural age both past and present

distin-With the building of empires, cultures began to play a more active role inlife, viewing external forces not only as threats to be avoided, but also aschallenges to be faced and potential opportunities to be harnessed Culturesthat viewed external forces as challenges and possible opportunities wereable to change faster and make more progress In contrast, cultures thatviewed external challenges as threats to be avoided became suspicious andinward-looking, and thus less able to change and make meaningful progress.Consequently, culture emerged as a force that shaped people’s ways ofthinking and attitudes, defining individual and community identities andgoals, setting priorities and influencing the nature of responses to variedchallenges Nevertheless, cultures, regardless of place and time, have alwaysshown little enthusiasm for change, especially change introduced from theoutside

THEINDUSTRIALAGEUntil thefifteenth century, no nation anywhere in the world had experi-enced profound change to distinguish itself from other nations.“The worldformed a single, albeit large, social system that operated at a much slowerpace than that to which we have become accustomed.”10 But around themiddle of thefifteenth century, the pace of social, cultural, political, eco-nomic, and technological change began to accelerate, causing social systems

to enter a period of transformation Trade, which by then had become animportant economic activity, led the ensuing change and paved the way for

the economic transformations, scientific discoveries and technological vations that were to follow, giving birth to what I call, theeconomic process.Other developments occurred subsequently and played decisive roles inpromoting change and accelerating its pace; they included improvements innavigation tools and maps, building better ships, producing potent arms,the development of the printing press, growing competition between themajor European cities and states, and the discovery of the New World.Owing to these developments, manufacturing expanded;financial serviceswere legitimized; and scientific and philosophical inquiry multiplied Threecenturies later, the Industrial Revolution took place in England, and fromthere traveled to other European and North American countries,transforming agricultural life to an extent previously unknown “Agricul-tural societies were transformed into urban industrial societies within thespace of perhaps a hundred years, and all the accumulated norms, socialhabits and customs that had characterized rural village life were replaced bythe rhythms of the factory and the city.”11

inno-For example, workers were no longer free to determine their workinghours and how to perform their work; tasks were assigned, working hourswere specified, regulations were imposed, and hierarchical relationshipswithin the workplace were enforced Income was tied to work, makingsurvival a function of work availability and worker’s capacity to work longhours Industrial man, as a result, was transformed through manufacturinginto a machine, causing work to become the focal point of life.Industrialman works to live and lives to work, causing life to start and end with work,even for the majority of rich capitalists Karl Marx, writing some 80 yearsafter the birth of the Industrial Revolution, observed that “man’s ideas,views and conceptions, in one word, man’s consciousness, changes withevery change in the conditions of his material existence, in his social rela-tions, and in his social life, or in the state of his living.”12

In the meantime, the concentration of workers living in crowded slumscaused things to change, and slowly a new social class emerged and began toform labor unions to facilitate collective bargaining and apply collectiveeconomic and political pressure on the industrial state Intellectuals, seeingthe intolerable living and working conditions in and around factories, andthe enormity of exploitation of children and women by capitalists,supported the demands of the working class Gradually, industrial workersdeveloped a class consciousness that made them look and behave as adistinct social class And as the Industrial Revolution advanced, it expandedand diversified economic and financial activities, causing new jobs to be

THE INDUSTRIAL AGE 7

created and more people to be involved in manufacturing And this in turncreated need for people to perform related tasks such as plant supervisors,sales persons, accountants, banking and investment officers and innovators.Consequently, a new class of largely urban dwellers was born; it was neitherrich nor poor but in between Because of its unique social position andfunctions, the new class shared neither interests nor traditions with eitherthe rich or poor; it has to develop its own way of life and claim its place insociety as a middle class.

On the other hand, people migrating from the countryside to urbancenters in search of jobs caused the extended agricultural family and itstraditions to disappear The new communities that emerged in the industrialcities were composed of nucleus families sharing smaller living spaces andfacing differentiated life challenges Traditions and kinship ties that pro-vided the social glue that held traditional agricultural communities togetherfor centuries were no longer workable in the new environment Andbecause neither tribes nor clans could function in the new society, thestate became more dominant and allegiance to it was strengthened.The age of industry did not only expand manufacturing, it also helpedagriculture grow and become more productive; it also expanded trade inagricultural products As a consequence, agriculture became dependent onindustry; it could not grow on its own to meet the growing demand for foodwithout the machines, fertilizers, improved seeds, and the irrigation systemsindustry and its technological base had developed Rendering agriculturedependent on industry caused its society to become dependent on industrialsociety The natural dependency of agricultural society on industrial societyrenders the dependency theory articulated by Latin American intellectualslargely baseless; it can neither explain lack of development in so many statesnor help a nation transform its economy and culture and overcome under-development.13 There is no doubt, however, that the western capitalistnations and their colonialist enterprise have worked hard to deepen thedependency of Third World economies on their own and, because of that,colonialism did contribute to hindering the development of Third Worldeconomies and societies

The fundamental change in the state and way of human living ushered in

by the Industrial Revolution was so profound that it made the history andthe wisdom of all previous civilizations largely irrelevant.“The physical andmental world we inhabit has changed more—and faster and more often—inthe past 200 years than it did in the previous 20,000 years.”14Changing thestate of human living as described above caused previous history to come to

an end; it no longer had valid experiences to share, or proven wisdom togive Nations that failed to understand this lesson were dwarfed by historyand made to pay a heavy price in squandered resources, lost opportunities,and increased dependency on others.

THE KNOWLEDGEAGEThe communications and information revolutions have changed reality inall places, particularly in industrial societies These revolutions are linkedtogether and dependent on each other, and because of that, they form onesocietal process, the infomedia process The twin revolutions havetransformed the media, leading it to become a powerful tool with thecapacity to manipulate the forces of the other three processes and influencethe course of change in society In fact, the infomedia process paved the wayfor the evolvement of the knowledge age, which began to transform oursocial, cultural and economic lives in the mid-1990s

The age of agriculture lasted about 10,000 years before the IndustrialRevolution occurred Because of its long duration, it was able to transformthe cultures and economic conditions of most tribal societies in the world.When the Industrial Revolution arrived in the eighteenth century, probably

80 % of the world’s population was living in the agricultural age But whenthe Knowledge Revolution announced its arrival around the middle of the1990s, the age of industry was hardly 200 years old Because of that, onlyabout 30 % of the world’s population was living in the industrial age Owing

to the complexity and knowledge requirements of the new age, it is notexpected to transform the culture or economic conditions or society of anentire nation at any time in the future; every nation will continue to needpeople to be engaged in activities that are rooted in the industrial andagricultural civilizations

As the knowledge age advances, the infomedia process has become morepowerful and influential because its services are essential to the properfunctioning of all institutions and organizations Knowledge is expected tomake the creation, commercialization and utilization of ideas, services andinformation the focal point of economic activity As a consequence, themajor source of wealth and power is expected to shift gradually from thedomain of capital to the domain of knowledge, and a new person whose job

is to create and process knowledge will soon emerge Because of that,knowledge man learns to live and lives to learn, which means his life startsand ends with learning Since knowledge is associated with individuals more

THE KNOWLEDGE AGE 9

than with groups, the individual will ultimately become the basic unit of thenew knowledge society, replacing the nucleus family of the industrial soci-ety, which replaced the clan of the agricultural society, which replaced thetribe of the tribal society.

Reactions to developments instigated by the advancement of the edge age are deep everywhere People are overwhelmed by strange currents

knowl-of change, and there is a feeling knowl-of a general loss knowl-of direction and controlover unfolding events Reactions to this change range from denial tobewilderment, from political conservatism and religious fundamentalism

to radical nationalism and extremism, from embracing the emerging valuesand lifestyles to cultural particularism, from universalism and globalism totribalism, from tolerance to racism All these reactions cause conflict andinstigate change and, in the process, create new realities that transformcultures and perspectives to make events more dynamic and irreversible

In fact, the knowledge age promises to make the future a world in apermanent state of transition

SOCIETALPROCESSES OFCHANGE

In the not-so-distant past, natural resources, the environment, states, giftedindividuals and ideas played important roles as agents of change and forces

of transformation Lately, however, the roles of all such agents have beenvastly diminished, and the roles of the societal processes of change havebeen enhanced at their expense These processes are the sociocultural,political, economic and infomedia processes They represent social mecha-nisms that have evolved over time to facilitate the introduction of changeand the management of its consequences And unlike social systems, societalprocesses do not abide by certain rules or laws, and are not subject tocontrol by any authority Together, they form the larger framework withinwhich all social systems and institutions function, and through which allchange is introduced and managed

The sociocultural process includes the social forces, institutions, ideas,values and belief systems that shape and manage the social and culturalaffairs of nations It performs tasks by sponsoring activities to preserve thecultural heritage of nations, emphasizing values and belief systems; clarify-ing the lines separating sectarian, cultural and religious groups; andresponding to external and internal challenges Since the major organizingprinciples of this process are values, traditions and religious convictions, itrepresents the forces of stability and continuity

The political process includes the forces, activities, ideas and institutionsthat shape and manage the political affairs of nations It performs its tasks byresponding to political needs at the local level, defining goals at the nationallevel and dealing with trade,financial and security issues at the internationallevel Usually political decisions are taken by the state, most political activ-ities are carried out by national institutions and goals are defined by thenation’s need to advance the national interest, which reflects the views ofthe political and economic elites.

The economic process includes the forces, ideas, institutions and goalsthat shape and manage the economic and financial affairs of nations Itperforms its tasks by responding to market forces that reflect the preferences

of consumers and the interests of businesspeople Opportunities created bynew technologies and changed domestic and international conditions pro-vide strong incentives for this process to expand globally and diversify itsactivities Because profits are made by producing and selling goods andservices, and since demand for goods and services exists everywhere, theeconomic process functions at all levels, in all places

The infomedia process includes the forces, organizations and groupsthat produce and control theflow of information and news and manageentertainment programs The infomedia performs its tasks by responding toevents and crises, analyzing official policies while giving priority to certainissues over others, providing educational and entertainment programs,collecting and disseminating information and facilitating theflow of ideasworldwide And for a price, the infomedia provides political and businessleaders with the means to promote their causes and reach targeted audiences

in a timely manner The ability of the infomedia to reach everyone, where, at all times; and its willingness to provide information and entertain-ment programs continuously has given it the power to influence people’sattitudes, mold and remold public opinions, and transform cultures Andsince all information passes through its channels, it is able to manipulatefacts and people’s hopes and fears, and influence business decisions.The sociocultural process was the first societal process to emerge inhistory, followed by the political process These two processes, concentrat-ing primarily on continuity and stability, worked together to dominate lifefor generations The economic process emerged slowly during the agricul-tural age and gained momentum after the Industrial Revolution; but before

every-it matured the infomedia process emerged to challenge every-its dominance.These two processes have concentrated on change rather than continuityand stability On the other hand, the sociocultural process produced great

SOCIETAL PROCESSES OF CHANGE 11

ideas and ideologies, of which religion is the notable one The politicalprocess produced great leaders, empires and philosophies, of which nation-alism, colonialism and democracy are most notable The economic processproduced great technologies, entrepreneurs, inventors, capitalism and com-munism The infomedia process is producing great innovations and virtualcommunities, while systematically destroying many of the old ideologicaland cultural barriers.

In each age, the societal process that enjoyed most authority in societyclaimed most of its talent During the agricultural age, the socioculturalprocess attracted talented people to serve religion and spread the faith Asthe political process became dominant, it attracted talented individuals tobecome bureaucrats, military commanders and tax collectors As a result,the sociocultural and political processes denied society the opportunity touse its talent to develop life and economy, directing talent instead toensuring continuity and stability Today, economic and infomedia processesattract almost all the talent available in the world; they employ them inscientific research, the development of telecommunications and informationtechnology,finance and marketing As the economic and infomedia pro-cesses employ world talent to develop economic andfinancial services, theycause socioeconomic gaps to widen, sociocultural divides to deepen andknowledge to become more materialistic and less humanistic

In concluding this chapter, it is important to reiterate that each societalstage represents a unique civilization with its particular society, economyand culture Since each civilization comes after a difficult transitional period,every transitional period, viewed from a wide angle, represents ahistoricaldiscontinuity that causes history of the passing era to come to an end, whilepaving the way for the new era to make its own history And as one historyends, its logic becomes irrelevant and the wisdom of the past becomes oflittle value to the people of the new age Transitional periods tend to beworkshops for destructive creativity, where creativity is a tool of destructionand destruction is a condition for further creativity As history approachesthe end of a transitional period, nations of the world tend to feel, asMatthew Arnold once remarked, as if they are“wandering between twoworlds, one dead, the other unable to be born.”15

The experience of a society passing through a civilizational transition issimilar to that of a driver entering rough mountainous terrain As he takes along curve on a winding road, he loses sight of the landscape that liesbehind, while the mountains he negotiates block the view that lies ahead

As his speed and control of the vehicle become subject to the rough terrain,

his expectations and confidence become subject to the ups and downs of theroad The familiar landscape that lies behind no longer helps; the horizonthat lies along the road is so obscured it provides few clues about what liesahead As a result, the driver becomes disoriented and less able to avoidmishaps and serious accidents.16

The transition from the tribal age to the agricultural age lasted about

3000 years, and the transition from the agricultural to the industrial agelasted about 300 years, making the second transitional period aboutone-tenth of the first Based on this observation, the transition from theindustrial to the knowledge age is expected to last about thirty years; it isexpected to end in about 2025 and to make our world into one that is in apermanent state of transition, because every subsequent transitional periodwill be shorter than the preceding one Since no change is neutral, it causespain and gain These tend to be unevenly distributed within and betweensocieties While some people get most of the gain, others feel most ofthe pain

NOTES

1 Jared Diamond, Gun, Germs and Steel: the Fate of Human Societies(W.W Norton, 1999): 92

2 Charles Van Doren,A History of Knowledge, 1991, 263

3 J L Sadie, “The Social Anthropology of Underdevelopment,” The nomic Journal 70, no 278 (June 1960): 294–303

Eco-4 John A Garraty and Peter Gay, The Columbia History of the World,(172 23)

5 Jared Diamond, Guns, Germs and Steel, 92

6 Jack Weatherford,“Savages and Civilization,” (Ballantine Books, 1994) 46

7 Jack Weatherford, Savages and Civilization, 49

8 Garraty and Gay, The Columbia History of the World, 52

9 Weatherford, Savages and Civilization, 50–51

10 Ibid., 26

11 Francis Fukuyama, the Great Disruption,The Atlantic, May 1994, 46

12 Karl Marx and Friedrich Engels, the Communist Manifesto, 51

13 Mohamed Rabie, A Theory of Sustainable Sociocultural and EconomicDevelopment, Palgrave Macmillan, 2016, pp 104–7

14 Curt Suplee, Imagine This,the Washington Post, January 2, 2000, B1

15 Lenichi Ohmae, The End of the Nation State, 1994, 10

16 Mohamed Rabie: Global Economic and Cultural Transformation, PalgraveMacmillan, 2013, chapter 3

NOTES 13

Global Change

Since the mid-1990s, change caused by the information and tions revolutions has transformed the way in which individuals, groups,societies and states view themselves and the world around them; it hasalso transformed traditional cultures and life conditions and how economicandfinancial systems function As a result, most assumptions that underpinsocial, political and economic theories have been largely invalidated, causingold theories and road maps of the near past to lose their usefulness Sincetransitional periods cause confusion and lead people to lose their sense ofdirection, no new theories and road maps could be developed in time toreplace the old ones and manage the consequences of change This chaptertries to identify and briefly analyze the most important socioeconomictransformations the world has witnessed since the middle of the 1990s.Economic globalization has transformed national economies in wayspreviously unknown, creating a very complex and integrated global econ-omy that functions outside the parameters of the past; in fact, no state orcollection of states is able today to control or even manage the new econ-omy As a result, economic structures and production relations have beenforced to change, causing the nation state to lose most of its power tocontrol its economy It has also caused societies in general and the indus-trialized ones in particular to enter a transitional period leading to a new,much complex society, having its own unique culture and economy, as well

communica-as its social and economic structures that differ from those of the industrialand agricultural societies

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During transitional periods, it is always easier to identify change anddescribe some of its manifestations than identify its root causes, influenceits course or predict its ultimate outcome On the other hand, as transitionalperiods cause existing economic, social and political structures to losevalidity and start crumbling, they create a trust deficit that feeds corruption,hypocrisy and opportunism in every society; and this in turn creates need fornew ideas and laws and regulations to guide societies, economies andpolitics into a largely uncharted future no one can escape.

Thefinancial crisis of 2008 was one of the consequences of a trust deficitcaused by the transition of American society from the industrial age to theknowledge age People in banking and finance, in mortgage lending andinsurance, driven by greed and lack of social responsibility and accountabil-ity, were able to exploit the outdatedfinancial regulations and create new,highly complicatedfinancial products, manipulate clients and regulations,and take unwarranted risks that caused the mortgage bubble of 2007 whichled to the 2008financial crisis and the Great Recession The financial reformbill passed by the US Congress in 2010 is an attempt to close that trustdeficit But since in my view this is yet to be recognized and understood byWestern economists and political leaders, the reform bill would not be able

to prevent anotherfinancial crisis and a deeper recession in the near future

At the time of writing, President Trump, supported by a Republican ity in both the Senate and the House of Representatives, is trying to abolishthese regulations

major-Every society in the world has two types of trust: traditional trust andsocial trust Thefirst prevails in small circles such as families, villages andcommunities of faith; the second prevails in larger cities and within businessand civil society organizations Traditional trust is a function of cultures thatseldom change in one’s lifetime, particularly in traditional agricultural soci-eties; social trust is a function of laws, regulations and interests that neverstop changing, particularly in industrial societies As societies move fromone civilization to another, social and business relationships become morecomplex, while interests become more relevant, causing existing laws andtraditions to become less able to control change and regulate its manymanifestations As a consequence, societies in transition experience trustdeficits; while traditional trust loses ground as its space shrinks, social trust isstill weak because its legal base is yet to be developed, and wherever trustdeficits exist, corruption, manipulation and eroding business ethics spreadand deepen their roots in society.1

16 2 GLOBAL CHANGE

The rapid industrialization of South Korea, China, India, Brazil and afew other nations has caused the global capacity to produce most essentialgoods and services to exceed the global capacity to absorb such goods andservices As a result, economic growth has slowed down, exposing theglobal economy to the dangers of recurring recessions,financial crises andhigh unemployment rates The global steel industry, being one of theindustries burdened by excess capacity, is teetering between failure andbankruptcy This creates an urgent need to expand existing markets anddevelop new ones to keep pace with the growing production capacity Sincethe absorption capacity of the industrialized states in general is fastapproaching its limits, in part because of the shrinking middle classes,aging populations, low population growth rates and widening wealth andincome gaps between rich and poor, efforts to develop new markets musttherefore concentrate on states where economies are still underdeveloped.And this is a task that market capitalism appears unwilling to take on,because its captains seem to feel comfortable exploiting existing opportuni-ties and accumulating more wealth and power.

The internationalization of major trade, investment and financialmarkets has caused national economies to become integrated, creating aglobal economy where its many economic andfinancial components com-pete and collaborate with each other as a matter of need; it has also causedthe economies, politics and security matters of most nations to becomeinterdependent As a result, there is no national problem anywhere todaywithout an international dimension, and no international problem without anational root As a consequence, the ability of states to deal with majoreconomic, financial and security challenges on their own has been vastlyweakened The debt crisis is one example that demonstrates the intricaterelationships that tie national and international institutions and states’ inter-ests together; and even regional approaches to deal with such issues havefailed In addition, labor is able to move with ease from one place toanother, causing clusters of industries and pockets of poverty to spreadeverywhere This“contains unifying capacities across national borders andsharpening conflicts within such boundaries The global capital and theimmigrant workforce are two major instances of transnationalized catego-ries that have unifying properties internally andfind themselves in contes-tation with each other inside global cities.”2

Free trade and open investment markets have changed the rules thatgovern traditional relationships between jobs and job-seekers, particularlyindustrial and knowledge jobs Beginning three decades or so ago, many

job-seekers have to leave their towns and sometimes countries and riskdying to reach a foreign country where decent jobs are available to improvetheir life conditions While this economic migration continues today, mostimmigrants lack the right education and skills to excel in a knowledge-basedeconomy; and therefore the jobs available to most economic immigrants arelow paying, which leaves them disadvantaged This creates tension andheightens fear on all sides of the nationality and cultural lines in societiesthat are attractive to economic immigrants Wars in Syria, Iraq, Libya,Yemen and Afghanistan on the one hand, and poverty, drought, terrorismand ethnic conflict in several African and Asian states on the other havecaused millions of people toflee their homelands and seek refuge in Europe.

In the meantime, poverty, lack of opportunity, political instability and drugwars in a few Latin American states have caused a stream of migrants seekingfreedom and a better life in the United States This stream of politicalrefugees cannot be stopped until hope is restored and economic and lifeconditions in the conflict-ridden countries are transformed, which theRamo Plan, to be articulated in the next chapter, is designed to do

In contrast, knowledge and industrial jobs in the new age are ously searching for cheap but highly qualified and motivated workers toemploy Industrial jobs travel from one state to another, looking for disci-plined labor with the right skills and attitudes, while knowledge jobs aretraveling, often virtually, looking for inexpensive but well-educated workerswith exceptional talents As a result, highly qualified and motivated people

continu-no longer need to leave their home towns or countries to obtain rewardingjobs with corporations that reside in faraway places Since multinationalcorporations abandoned their traditional commitments to labor, commu-nity and country years ago, they are willing to hire anyone and invest in anycountry in order to maximize profits and enlarge market share Therefore,any state that is ready for such corporations willfind them ready to bringtheir capital, technology, culture and management systems to create newjobs for its skilled labor, and to help it industrialize

Sociologist Saskia Sassen argues that globalization has caused the tion of global cities, in addition to creating a global economy Global cities,according to Sassen, “accumulate immense concentrations of economicpower while cities that once were major manufacturing centers suffer inor-dinate declines; the downtowns of cities and business centers in metropol-itan areas receive massive investments in real estate and telecommunicationswhile low-income urban and metropolitan areas are starved for resources;highly educated workers in the corporate sector see their incomes rise to

crea-18 2 GLOBAL CHANGE

unusually high levels while low- or medium-skilled workers see theirs sink.Financial services produce super profits while industrial services barelysurvive.”3 As a consequence, manufacturing centers of the past havedeclined and lost their glory and pride; some have become ghost towns.This in turn has caused old towns and communities to become homes forpoor, largely hopeless and helpless people.

“The presence of a critical mass of firms with extremely high making capabilities contributes to bid up the prices of commercial space,industrial services and other business needs, and thereby makes survival forfirms with moderate profit-making capabilities increasingly precarious.”4

profit-This in turn, encourages businesses with low profit-making capabilities tobecome informal, operating in the shadows, paying low wages and offeringlittle or no social benefits to their employees, causing inequality to spread,deepen its roots in society and become structural And though income,wealth and power inequalities are as old as human history itself, the new age

of knowledge is witnessing the emergence of a global super-rich classowning more than 50 % of the global wealth and controlling the political,economic and infomedia processes and therefore influencing the direction

of change everywhere

Back in 1991, I argued in The New World Order that the US socialphilosophy and systems of economic management and political organiza-tion have led to“creating and perpetuating three types of socioeconomicand sociocultural islands in the United States The first type in generallycharacterized by affluence and security; the second is characterized bypoverty and violence; both of these types, however, are urban islands; andthe third type, which dominates rural America, is generally less affluent thanthefirst and largely more peaceful than the second.”5As a result, the ruraltype tends to be culturally different from both urban types This simplymeans that socioeconomic and sociopolitical inequalities and socioculturaldifferences are not new but deeply rooted in every society However,economic and cultural globalization has served to normalize these differ-ences and inequalities, and to legitimize them in the eyes of most people,particularly the eyes of the controlling political, economic and media elites.But as wealth and power are more concentrated in fewer hands poverty andignorance spread, inequalities become structural and economic growth ratesdecline

The transition from the industrial age to the knowledge age that started

in the mid-1990s has disrupted life as we knew it; it has dissolved theconnection between the immediate past and the near future, causing the

industrial economy and society to lose their main characteristics and sense ofdirection But as the industrial age comes to an end, the knowledge age isstill being born, leaving the present waiting for the unknown The present

we are living in today has been reduced to a mere port where the past isending its long journey, as the future gets ready to begin its voyage into anew world that no one knows much about Consequently, people and thesystems through which they function and manage their life affairs havebegun to experience one crisis after another without much hope ofregaining balance in the near future Regaining balance and confidencerequires two basic things: understanding the nature of the transition; andarticulating new ideas and systems to manage change and facilitate theconstruction of new cultures, economies and societies

All of the above developments have caused most economic, social andcultural conditions of decades ago to change drastically in a short time,causing the assumptions upon which old economic andfinancial theories arebased to be invalidated Such assumptions include the notions that nationaleconomies are largely closed, trade is subject to restrictions, foreign invest-ment is subject to regulations, investment requires domestic savings, thenation state is in control of its economy, and neither labor nor money is free

to cross state borders Since all such restrictions have been fully or partiallyremoved, the traditional tools for managing national economies and dealingwith issues such as recessions, unemployment and trade have becomeineffective Consequently, the traditional economic theory has becomelargely dysfunctional This is why the US government has failed to creategood paying jobs for the overwhelming majority of unemployed Americansand to restore higher economic growth rates; and why European efforts todeal with the Greek debt crisis have failed to solve or even ease the debtproblem, or to create jobs for the unemployed millions in Europe

Failure to acknowledge the declining relevance of traditional economicandfinancial tools will cause most economists and politicians to think inside

a largely empty box and fail to realize the need for new tools Whiletraditional economic thinking may continue for a few more years, it canneither explain the nature of change nor can it deal with its consequences.Even the law of supply and demand, which represents the core of theclassical economic theory, has become partially dysfunctional For example,owing to the large increase in oil prices in the late 1970s, demand for oildeclined by 17 %; however, the almost tripling of oil prices in 2005–6 failed

to cause even a small decline in demand Rising prices of smartphones donot seem to discourage anyone from using them; on the contrary, they seem

20 2 GLOBAL CHANGE

to have encouraged young people to spend more on upgrading their phonesand adding new apps This change is largely due to the deep socioculturaltransformations that world society has witnessed since the advent of theKnowledge Revolution in the mid-1990s The Great Recession does notrepresent another business cycle, as many economists have claimed; itsignifies the end of an era.

There is no doubt that the traditional economic theory has had a solidrecord of success in managing the economic andfinancial affairs of nations

in good times and bad during the second half of the twentieth century.Economists have also played and continue to play a major role in debatingeconomic policy, political decisions, the distribution of wealth and income,and the impact of these issues on fairness, poverty, employment, the middleclass, equality and social mobility However, the moment a theory’s assump-tions become unrealistic, the theory loses its relevance and becomes useless.Building a theory is like building a house: you start with the foundations,which is the equivalent of making assumptions If the foundations are good,the house will last for a long time, but not forever; if the assumptions arerealistic, the theory will last for as long as situations remain the same orexperience little change Nevertheless, foundations exposed to earthquakesandfloods are unlikely to live long or stay solid for a long time; and so areassumptions that try to reflect human behavior and living conditions thatnever stop changing, particularly during transitional periods that take soci-eties from one civilization to another

CHAPTER 3

The Global Debt Crisis

Without going into details, public records indicate that the US public debtwas 73% of the American gross domestic product (GDP) in 2008; it rose to102% in 2012 and reached 105% in 2016 As for Japan, the debt to GDPwas 171% in 2008, 216% in 2012 and 232% in 2015 China’s debt was 32%

of GDP in 2008, 37% in 2012 and 43% in 2015 In the United Kingdom,the debt ratio to GDP was 57% in 2008, 101% in 2012 and 103% in 2015

In France, the debt ratio was 79% in 2008, 109% in 2012 and 116% in

2015 In Germany, the debt ratio was 70% in 2008, 86% in 2012 and 80%

in 2015 As for states of the Organization of Economic Cooperation andDevelopment (OECD), the debt to their combined GDP was 80% in 2008,107% in 2012 and 111% in 2015

As a percentage of GDP, the debt estimates for some of the majoreconomic powers and highly indebted states are as follows; Belgium106%, Brazil 59%, Canada 95%, Cyprus 110%, Egypt 95%, Greece 180%,India 66%, Ireland 126%, Italy 132%, Jordan 90%, Lebanon 134%, Portugal125%, South Africa 45%, Spain 101% and Turkey 36 For the Eurozone as awhole, Eurostat says the public debt to GDP ratio passed 92% in 2015 Onthe other hand, the combined GDP of all nations, according to the Inter-national Monetary Fund (IMF), has reached$75.5 trillion in 2015, and thetotal public debt, according to my estimates, is about$69 trillion, or 90% ofglobal GDP About$53 trillion or 78% of this debt is owed by the OECDmember states, whose combined GDP is estimated at$48 trillion China’sGDP is estimated to have reached$11.4 trillion in 2016, which makes itsdebt about$5 trillion Since the combined GDP of other states, including

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Brazil, India and Russia, is about$16.5 trillion, their debt would be about

$10 trillion, or 61% of their GDP

As a percentage of the global GDP, the debt of the OECD nations isabout 78%, China’s debt is about 7% and the debt of the rest of the world’snations would be about 15% (Numbers and ratios are based on informationobtained from seven major sources; the World Bank, the IMF, the OECD,European Council, Eurostat, the CIA World Factbook, Global Finance andTrading Economics websites and the different debt clocks.)

While the global debt is estimated at$69 trillion, interest due on thisdebt until maturity is estimated at$19 trillion As a consequence, the totaldebt obligations of all nations until maturity would be about$88 trillion, ofwhich about $69 trillion is owed by the OECD states, including Japan,about $13 trillion is owed by developing nations and about $6 trillion isowed by China These numbers and ratios clearly indicate that the currentdebt crisis, unlike the crisis of the early 1980s, is the rich nations’ problem.Nevertheless, I believe that when and if all states reveal their actual debtobligations, the total will exceed$100 trillion

THERAMOPLANToday, most nations face mountains of debt and huge budget deficits thathinder their abilities to grow their economies, create jobs for the unem-ployed, and help their needy and university students burdened by debt As aconsequence, poverty and unemployment rates remain high in most coun-tries, and a sense of hopelessness and helplessness overwhelms a majority ofpeople in many parts of the world Since the debt problem is not limited toten or twenty states, it must be viewed as a global issue To address this issueand the social ills it has precipitated, I present below the Ramo Plan This is acreative plan that defies conventional economic wisdom; yet it has thecapacity to liberate all states from the debt burden, restructure the interna-tional monetary system, restore global financial stability and create thenecessary conditions for sustainable global development and internationalpeace The plan is as follows:

1 To designate the International Monetary Fund (IMF) as a globalcentral bank, with powers to issue a new international currency to becalled Ramo, divided into 100 zents, and to issue bonds in Ramos, inaddition to its current functions;

2 To set the value of the Ramo at the rate of the IMF Special DrawingRights unit, which means converting the virtual IMF currency to areal one that could be used by banks, states and people;

3 To give each state the opportunity to repay its entire debt tions, including interest due until maturity, by issuing money notesand credit certificates in its own national currency payable to theIMF;

obliga-4 To authorize the IMF to open a trust account or an escrow account

in which all such funds would be deposited and kept for the solepurpose of meeting the debt obligations of the IMF member states;the IMF would pay all debt notes on behalf of its members as theybecome due, not before or after;

5 To ask each state to pay an amount equivalent to 10% of its total debtobligations as management fees; these fees, expected to be about

$10 trillion, would be deposited in a special fund managed by aninternational board of renowned personalities to finance programsoutlined hereunder and compensate the initiators and administrators

of this proposal;

6 To establish a$1 trillion educational fund to build fifty new sities, with a mission to promote peace, cultural diversity, tolerance,critical thinking, creativity and innovation, and develop environmen-tally friendly technologies; all universities would be strategicallylocated to serve as many regions of the world as possible;

univer-7 To establish a$1 trillion humanitarian fund to help victims of warand natural disasters such as hurricanes, tsunamis, earthquakes, seri-ous diseases and refugees worldwide;

8 To establish a $1 trillion environmental fund to restore the globalenvironment to its past glory with its blue skies, rivers and seas, aswell as beautiful forests, plants and animals;

9 To use the remainder of the management fees, estimated at $7trillion, to establish a sustainable development fund (SDF) to assistall developing and underdeveloped nations to transform their tradi-tional cultures, grow their economies, reduce poverty, create jobs forthe unemployed and join the industrialized world;

10 To create a few international corporations and institutes in nation with the World Bank to facilitate the articulation and imple-mentation of plans to help poor nations develop their economies,transform their cultures and industrialize

coordi-THE RAMO PLAN 25

The moment a nation pays its debt and the management fees as outlinedabove, it becomes free of debt and the IMF assumes full responsibility for itsdebt obligations Since a global economy needs a global central bank tofunction properly, the new role assigned to the IMF and the issuance of theRamo would serve to restructure the international monetary system, basing

it on a new“gold standard.” Since the IMF does not have enough gold, agolden Ramo, backed by the good faith and currencies of all member states,would become the international standard currency against which all othercurrencies would be pegged, making all currencies more stable and lesssusceptible to manipulation by traders and politicians Exporters of oil,natural gas, food products and other strategic commodities would be able

to price their exports in dollars or Ramos, enabling them to forecast futureincomes and spending plans more accurately Meanwhile, using the Ramo

to price major export commodities would guarantee fairness; no nationwould pay less as the value of its currency appreciates against the US dollar;

no nation would pay more as its currency depreciates against the dollar Theissuance of the Ramo would mark a new era in history in which all states willfinally acknowledge that all economies have become not justinterdependent but largely integrated

Since budget deficits include interest payments to service the debt, manystates would see their deficits vastly reduced the moment they paid theirdebt Some states such as Germany would likely see their deficits disappearovernight Such a development would calm globalfinancial anxiety, restoreinvestor and consumer confidence, strengthen banks, and give all states adecade or so to restructure their spending and tax policies and balance theirbudgets

CONCERNS ANDFEAR OFINFLATIONSome economists will argue that repaying the public debt in this fashionamounts to printing money and issuing credit not backed by solid assetssuch as gold and silver This is true, but so is the printing today of dollars,euros, pounds and other currencies; these are currencies backed by the goodfaith of the states issuing them, not by gold or other assets Compared withthese currencies, the Ramo would be backed not by one state but by all IMFmember states Furthermore, if the debt is not paid as proposed, any debtrepayment in the future would be made in dollars or euros or anothercurrency In fact, all loans would be made and repaid in regular currenciesthat lack material backing Therefore, the means to pay today as well as later

are the same; the only difference is paying today and freeing all nations fromthe debt burden and revitalizing the world economy, or waiting until thehighly indebted states begin to default one after the other and the banking,credit and international trading systems stop functioning.

Other economists might argue that creating so much money wouldignite inflation and hurt consumers everywhere This is simply incorrect.The IMF has no mandate to spend any portion of the money it wouldreceive except as outlined above The proposed arrangement for debtrepayment changes the identity of the payer only, not the amount to bepaid or when it is paid Though the IMF is required to pay all debt notes asthey become due on behalf of its member states, it could arrange, incoordination with concerned beneficiaries, to roll over some loans andkeep the money for as long as needed to maintainfinancial stability.There is no doubt that repaying some$100 trillion over twenty to twenty-five years is a cause for concern; however, existing needs and availablemonetary tools are capable of managing this money and easing all concerns.Trillions of dollars are needed to strengthen European and American banksand enable them to repay loans to central banks And since paying the debtdoes not eliminate the budget deficits of all states, borrowing will resumeimmediately after the debt is paid, but at a much slower pace Moreover,states can issue bonds to reducefinancial liquidity when the need arises, andcentral banks have the power and tools to tighten money supplies Inaddition, the Ramo Plan gives the IMF authority to play a role in managinginternationalfinancial liquidity

On the other hand, the plan to help poor nations to develop theireconomies and transform their national cultures could create millions ofinvestment opportunities annually for decades to come; the SDF, to beoutlined in the next section, would facilitate the creation of millions of jobs

in developed and developing countries Moreover, as the IMF pays backloans, it should give lenders the option of being paid in the same currencies

of the loans or in Ramos This action alone would limit the increase in thesupply of all national currencies, while paving the way for the Ramo to playits intended role as a major reserve currency

Inflation, which means higher than usual rates of increase in the generalprice level, has lost most of its power; it has been brought under control inmost parts of the world The belief that increasing the supply of moneycauses prices to rise rapidly and ignites inflation is based on assumptions thathave long been invalidated Such assumptions include the notions thatnational economies are largely closed, money is not able to cross state

CONCERNS AND FEAR OF INFLATION 27